Surviving the annual cash flow crunch

Behind the parties and trips to the beach, the holiday season can be a cumbersome time for business owners trying to balance the books and manage cash flows.

“We see first-hand the pressures that business owners face at this time of year. The holiday season can take its toll, both financially and emotionally but there are simple steps that can be taken to not only survive but thrive throughout the festive season,” said Andrew Spring of insolvency and business recovery practice Jirsch Sutherland.

“The key is to set realistic expectations on the businesses performance, and then to plan for the unexpected in any event.”

In achieving this, Mr Spring has these strategies for business owners to follow:

1. Collect your dues

“I have seen many examples of business owners that are failing to invoice (either on time or at all), or they provide extended credit terms. This can have a massive impact on a business’ cash flow,” said Mr Spring.

“It’s important to seek advice early, and to educate your customers around your credit procedures. If your terms are seven days, then reinforce those terms.”

According to Mr Spring, this scenario is particularly common among tradespeople.

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“I’ve seen many tradies fall into this situation, where they do a job but then forget to invoice or are too tired and then feel embarrassed about invoicing some weeks down the track,” he said.

“I remember one matter where the electrician only worked with a handful of builder clients and failed to invoice one for several jobs, and by the time he remembered he was embarrassed to [invoice] as too much time had elapsed. The electrician then didn’t have a cash flow and ended up folding.

Mr Spring added: “Efficiency is important. Being as diligent with an invoice as you are with the job is crucial.”

2. Declutter

Just as physical clutter can impede access within a space, digital clutter and disorganisation can lead to a needless seepage of funds.

As such, Mr Spring advises avoiding paying interest on stale inventory or hoarding last season’s stock by selling it at a discounted price to get it out the door.

“I recently worked with a retailer, where they had a warehouse full of stock they hadn’t gotten rid of. We ultimately sold all the stock in one line to another company (a competitor),” he recalled.

“I also handled another matter a few years ago for an Australian fashion brand where they had to stock six seasons in its warehouse, which was a logistical nightmare. The company ended up becoming insolvent.”

3. Shut up shop

If it’s going to be a quiet time, it can make better financial sense to close down altogether rather than keep the doors open. However, the effects of this can be less obvious than simply saving on power bills.

“This is good for the balance sheet. It’s important that staff take leave at the appropriate time,” said Mr Spring.

He recalled one micro business with only a couple of staff that didn’t get a staff member to use their leave and it accrued, which meant that when the staff member left, the business owner had to pay out the leave entitlements, which had a huge impact on the business.

4. Recharge the batteries

Business leaders can often get so caught up in running the business and managing all of its components that they forget about their own wellbeing and lead to burnout – which is clearly not in the best interest of the business or its owner.

As such, the holidays present an ideal time to relax and recharge.

“This is so important. Too many business owners / directors get caught up doing the day-to-day work; they work seven days a week and don’t take the time out to see if they’re actually making money,” said Mr Spring.

“I worked with a civil engineering business that was handling project-related contract work and kept winning bigger tenders, but then couldn’t handle the work (they grew too fast and couldn’t resource it).

5. Have a contingency plan

Sadly things can go wrong and emergencies do happen, which makes backup plans an absolute must: particularly for events such as power outages, IT failures or client emergencies.

“A situation like this can be the straw that broke the camel’s back for small companies,” said Mr Spring.

“I worked on a job where a small café that was in financial strife had a freezer blow up (the motor). The café lost all of its frozen goods and couldn’t recover.”